Page 31 - Investment Advisor April/May 2022
P. 31
THE PLAYING FIELD
By Melanie Waddell
These Compliance Issues Are Top of Mind
for Regulators. Are You Ready?
The SEC exam division still struggles with advisor exams, but that won’t
stop a heightened focus on Reg BI.
nvestment advisors — and the attor- examiners are still “completely remote”
neys who represent them — face with plans to be back in the office in
Ia torrent of issues in 2022. Since early June. When onsite exams will
January, the Securities and Exchange resume, however, remains uncertain.
Commission has issued 11 new propos- “We’ve been very effective operating
als, all while advisors are busy prepping remotely,” Kahl said. “We don’t see the
for the Nov. 4 compliance date for the need to be aggressive” when it comes to
agency’s game-changing marketing rule. onsite exams. That said, the exam divi-
Despite the SEC exam division con- sion is “going to push out” as many Risk
tinuing to struggle to keep pace with Alerts as it can this year, Kahl added.
exams of investment advisors, indus-
try attorneys see the agency and the REG BI FOCUS
Financial Industry Regulatory Authority In 2022, the priority for FINRA in exam-
ramping up exams of firms’ compliance ining BDs’ compliance with Reg BI “is
with Regulation Best Interest. to make sure that written supervisory
Despite the SEC exam In early March, Daniel Kahl, act- provisions are, in fact, in place and to
division continuing ing director of the SEC Division of foster compliance with the rules,” Sandy
Examinations, warned at the Investment
Grannum, partner with Faegre Drinker,
to struggle to keep Adviser Association’s compliance con- said on a recent webcast. FINRA also
pace with exams of ference that while the agency’s advisor wants to see that BDs “are actually train-
exam rate reached 16% last year, the
ing individuals to make sure that they
investment advisors, division has “squeezed out” its resourc- are capable of complying with the rules,
industry attorneys see es. He questioned whether the regulator and that there’s adequate disclosures to
the public on what it is they’re doing.”
could reach a 15% exam rate in 2022.
the agency and FINRA “We’re going to try to target 15%” of FINRA’s recently released 2022 exam
ramping up exams firms to examine, he said. report should serve as a Reg BI guide-
book as it provides feedback on what
The number of examiners, Kahl report-
of firms’ compliance ed, “has not materially increased for many FINRA deemed “faulty” compliance.
Jim Lundy, partner at Faegre Drinker
with Regulation years” as the number of RIAs increases, he in Chicago, added on the webcast that
said, adding that the number of net new
Best Interest. advisors reached an all-time high in 2021. while Reg BI applies to broker-dealers,
IAA’s 2021 Investment Adviser the SEC, under Chairman Gary Gensler,
Industry Snapshot found that the total “is continuing to scrutinize” the invest-
number of firms registered with the SEC ment advisory industry.
in 2021 hit a record high of 13,880 — an “We’re seeing more and more exami-
increase of 386 firms, or a 2.9% boost, nations with alleged violations of Section
from 2020. The number is drawn from 206 — the statute that applies the fidu-
data reported to the SEC on Form ADV. ciary standard,” Lundy said. Best interest
Kahl stated at the IAA event, held is “definitely much more aligned than it
in Washington on March 3-4, that was historically … We see the term ‘best
APRIL/MAY 2022 INVESTMENT ADVISOR 29
